PETITIONER:
M.V. JAVALI
Vs.
RESPONDENT:
MAHAJAN BOREWELL & CO. & ORS.
DATE OF JUDGMENT: 26/09/1997
BENCH:
M.K. MUKHERJEE, M. JAGANNADHA RAO
ACT
HEADNOTE
JUDGMENT
ORDER
Special Leave granted. Heard the learned counsel for the parties.
The appellant, who is an Assistant Commissioner of Income Tax, filed a complaint in the Special Court for Economic Offences at Pantalone alleging commission of an offence under section 276B, read with section 278B, of the Income Tax Act, 1961 ("Act’ for short) by M/s Borewell & Co., a registered partnership firm (the respondent No.1) and its three partners (the respondent Nos. 2 to 4). The Special Court took cognisance of the offence alleged and issued process against the respondents for their attendance. After centering appearance they filed an application praying for their discharge under Section 245(2) of the Code of Criminal Procedure. The Special Court allowed the application on the ground that before granting sanction for their prosecution under Section 279(1) of the Act, the Sanctioning Authority did not give the respondents a personal hearing. The other grounds raised by the respondents for their discharge were however kept open. Assailing the order of discharge the appellant filed a revision petition in the High Court which was dismissed by the impugned order. Hence this appeal.
In upholding the order of discharge, the High Court did not deal with the ground that found favour with the Special Court but held - relying upon its earlier judgment in P.V. Pai Vs. R.L. Rinawna [ILR 1993 Karnataka 709] - that the prosecuting of respondent No.1 under section 276B was not maintainable for if ultimately the Special Court found it to be guilty it (the Court) could not legally impose a substantive sentence upon it which was mandatory thereunder. As regards the other respondents, though the High Court found it to be guilty it (the Court) could not legally impose a substantive sentence upon it which was mandatory thereunder. As regards the other respondents, though the High Court found that the prosecution against them was maintainable for the above offence, it still upheld their discharge.
To answer the question whether a company, belong a juristic person and thus incapable of being sentenced to imprisonment can be prosecuted - and for that matter convicted - for committing an offence under the Act which provides for compulsory imprisonment and fine, it will be necessary to refer to the provisions of the Act with which we are concerned in this appeal.
Section 276B lays down that if a person fails to pay to the credit of the Central Government, the tax deducted at source by him as required by or under the provisions of Chapter XVII-B [which includes section 194 C (2) for violation of which the prosecution in the instant case was lodged] he shall be punished with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine. Section 278 B reads as under;
278B (1) "Where an offence under
this Act has been committed by a
company, every person who, at the
time the offence was committed, was
in charge of, and was responsible
to, the company for the conduct of
the business of the company as well
as the company shall be deemed to
be quilty of the offence and shall
be liable to be proceeded against
and punished accordingly.
Provided that nothing contained in
this sub-section render any such
person liable to any punishment if
he proves that the offence was
committed without his knowledge or
that he had exercised all due
dilligence to prevent the
commission of such office.
(2) Notwithstanding anything
contained in sub-section (1), where
an offence under this Act has been
committed by a company and it is
proved that the offence has been
committed with the consent or
connivance of, or is attributable
to any neglect on the part of, any
director, manager, secretary or
other officer of the company, such
director, manager, secretary or
other officer shall also be deemed
to be quilty of that offence and
shall be liable to be proceeded
against and punished accordingly.
Explanation - For the purposes of
this Section-
(a) "company" means a body
corporate, and includes-
(i) a firm; and
(ii) an association of persons or a
body of individuals whether
incorporated or not; and
(b) "director", In relation to-
(i) a firm, means a partner in the
firm,
(ii) any association of persons or
a body of individuals, means any
members controlling the affairs
thereof."
(emphasis supplied)
From a plain reading of the above Section it is manifest that if an offence under the Act is committed by a company the persons who a reliable to be proceeded against and punished are: (i) The company, (which includes a firm); (ii) every person, who at the time the offence was committed, was incharge of, and was responsible to the company for the conduct of the business; and (iii) any director (who in relation to a firm means a partner), manager, secretary or other officer of the company with whose consent or connivance or because of neglect attributable to whom the offence has been committed. The words ’as well as the company’ appearing in the Section also make it unmistakably clear that the company alone can be prosecuted and punished even if the persons mentioned in categories (ii) and (iii), who are for all intents and purpose vicariously liable for the offence, are not arraigned, for it is the company which is primarily guilty of the offence.
Even though in view of the above provisions of Section 278B, a company cam be prosecuted and punished for an offence committed under Section 276B (besides other offences under the Act) the sentence of imprisonment which has got to be imposed thereunder cannot be imposed, it being a juristic person. This apparent anomalous situation can be resolved, needless to say, only by a proper interpretation of the section. Before we proceed to consider the principles governing the interpretation of statutes we may profitably look to the 47th report of the Law Commission of India dated February 28, 1972. While dealing with social and economic offences committed by Corporations (including companies, firms and association of individuals) if observed that though a company has no physical body and traditional punishments might thus prove ineffective, the real penalty could be inflicted upon its respectability, that is, by way of a stigma. Therefore, it was appropriate that the company itself be punished so that in the public mind the offence would be linked with the name of the Corporation and not merely with the name of the director or manager who might be a non-entity. Punishment of fine in substitution of imprisonment could solve the problem in this behalf. The Commission recommended, apart from introduction of a provision in Section 62 of the Indian Penal Code, appropriate amendments in the Central Excise Act, 1944, Wealth Tax Act, 1957 and Income tax Act, 1961 on the lines of Section 93 of the Gold Control Act, 1968. The provisions contained in Section 278B of the Act appear to be based on the recommendations of the Law Commission. Para 8.1 of the Law Commission Report reads as under:
"8.1. An important type of while-
collar crime is that committed by
Corporations, Since a Corporation
has no physical body on which the
pain of punishment could be
inflicted, not a mind which can be
guilty of a criminal intent,
traditional punishments prove
ineffective, and new and different
punishments have to be devised.
The real penalty of a corporation
is the diminution of
respectability, that is, the
stigma. It is now usual to insert
provisions to the effect that the
Director or Manager who has acted
for the corporation should be
punished. But it is appropriate
that the corporation itself, should
be punished. In the public mind,
the offence should be linked with
the name of the corporation, and
not merely with the name of the
Director or Manger, who may be a
non-entity. Punishment of fine in
substitution of imprisonment in the
case of a corporation could solve
the problem in one aspect; but, at
the same, it is necessary that
there should be some procedure,
like a judgment of condemnation,
available in the case of an anti-
social or economic offence
committed by a Corporation. This
will be analogous to the punishment
of public censure proposed for
individuals."
And Para 8.3, to the extent it is relevant for our purposes, reads as under:
"8.3. In many of the Acts relating
to economic offences, imprisonment
is mandatory. Where the convicted
person is a corporation, this
provision becomes unworkable, and
it is desirable to provide that in
such cases, it shall be competent
to the court to impose a fine.
This difficulty can arise under the
Penal Code also, but it is likely
to arise more frequently in the
case of economic laws."
Coming now to the principles of interpretation of statutes this Court observed in Siraj-ui-Hag Khan vs. The Sunni Central Board of Wakf U.P. (A.I.R. 1959 SC 198) as under:
"It is well settled that in
construing the provisions of a
statute, courts should be slow to
adopt a construction which tends to
make any part of the statute
meaningless or ineffective; and
attempt must always be made so to
reconcile the relevant provisions
as to advance the remedy intended
by the statute. In such a case, it
is legitimate and even necessary to
adopt the rule of liberal
construction so as to give meaning
to all parts of the provision and
to make the whole of it effective
and operative."
Again in Union of India Vs. Filip Tiago De Gama (A.I.R. 1990 SC 981) this Court observed:
"The paramount object in statutory
interpretation is to discover what
the legislature intended. This
intention is primarily to be
ascertained form the text of
enactment in question. That does
not mean the text to be construed
merely as a piece of prose, without
reference to its nature or purpose.
A statute is neither a literary
text nor a divine revelation. ’
Words are certainly not crystals,
transparent and unchanged’ as Mr.
Justice Holmes has wisely and
properly warned (Towne v. Eisjher,
(1918) 245 US 418, 425. Learned
Hand, J. was equally emphatic when
he said ’Statutes should be
construed, not as theorems of
Euclid, but with some imagination
of the purposes which lie behind
them’. (Lenigh Valley Coal Co. vs.
Yensavage: 218 FR 547 at 553)"
It further observed as under:
"If there is obvious anomaly in the
application of law the Court could
shape the law to remove the
anomaly. If the strict grammtical
interpretation gives rise to
absurdity or inconsistency, the
Court could discard such
interpretation and adopt an
interpretation which will give
effect to the purpose of the
legislature. That could be done,
if necessary even by modification
of the language used. (See
Mahadeolal Kanodia v. The
Administrator General of West
Bengal (1950) 3 SCR 578; (AIR 1960
SC 936). The legislators do not
always deal with specific
controversies which the Courts
decide. They incorporate general
purpose behind the statutory words
and it is for the court to decide
specific cases. If a given case
is well within the general purpose
of the legislature but not within
the literal meaning of the statute,
then the Court must strike the
balance."
Keeping in view the recommendations of the Law Commission and the above principles of interpretation of Statutes we are of the opinion that the only harmonious construction that can be given to Section 276B is that the mandatory sentence of imprisonment and fine is to be imposed where it can be imposed, namely on persons coming under categories (ii) and (iii) above, but where it cannot be imposed, namely on a company, fine will be the only punishment. We hasten to add, two other alternative interpretations could also be given: (i) that a company cannot be prosecuted (as held in the impugned judgment); or (ii) that a company may be prosecuted and convicted but not punished, but these interpretations will be dehors Section 278B or wholly inconsistent with its plain language.
For the foregoing discussion w are unable to sustain the impugned order of the High Court so far as it held that the prosecution of respondent No.1 was legally impermissible. Equally unsustainable is the order of the High Court dismissing the revision petition oua the other respondents in absence of any finding to indicate that it agreed with the reasoning of the trial Court for their discharge. We, therefore, allow this appeal, set aside the impugned order of the High Court upholding the discharge of the respondents and direct it to hear the revision petition filed by the appellant afresh in accordance with law and in the light of the observations made herein before.